This Houston venture capital leader is looking at how 2020 — for all its disappointments — might be a great year for B2B software-as-a-service companies. Getty Images

B2B software as a service, or SaaS, founders entered 2020 riding a wave of the longest economic expansion in United States history. Valuations increased to new highs, funding rounds continued getting larger at each stage, and forecasts went up and to the right fast. But then, March hit.

Quickly and seemingly out of nowhere, headlines became dominated by apocalyptic predictions of death, record levels of unemployment, shocking economic forecasts of GDP contraction, historic mass layoffs and furloughs, and unprecedented multi-trillion dollar economic stimulus packages. For founders every instinct began screaming to cut costs and hunker down.

But should B2B SaaS founders cut their organizations right now? Through analyzing a few key events and looking to the evidence in the market today, founders can develop a strategy for growing during this crisis. Not only is growth cheaper for most B2B SaaS against the backdrop of economic meltdown, but with the majority following a hunker-down instinct, a growing B2B SaaS firm will compare very favorably against a landscape of stale and stagnant competitors.

Reviewing the 1918 Spanish Flu Pandemic and the 2008 downturn

While the health implications vary widely between the current pandemic and the 1918 flu epidemic, the economic reactions share many similarities. The US response to 1918 was just as fractured as the states' reactions to COVID have been this year. As cities and states in 1918 shut down commerce to stem the spread of the flu, economic contraction quickly gave way to rebound, the so called "V-shaped recovery," despite the Spanish Flu having much higher death rates among working individuals than COVID-19.

There are major differences between 1918 and 2020, however. First, there is untapped potential in technology to replace workers. As businesses look for ways to cut costs, expect them to aggressively turn to automation, ultimately depressing real wages. Second, the 1918 response did not include shutdown measures as draconian as those we are experiencing in 2020. This could lead to permanent output loss across a wide range of industries, increasing real prices just as real wages decline. And third, the trillions of dollars in federal economic relief are unlike anything attempted in 1918.

The 2008 downturn that nearly brought the financial sector to a halt rippled through the economy as businesses in a wide range of industries made steep cuts to operations and capital expenditures. Despite this dangerous environment, SaaS firms increased profitability and continued to grow revenues each quarter. Growth slowed but remained positive while most other companies experienced absolute declines in revenue.

Customer acquisition for SaaS businesses usually gets more efficient during downturns, driving the potential for faster growth. The performance of all publicly traded B2B SaaS firms during 2008 illustrated in Figure 1 above proves the resilience of this category during a recession. While revenue continued to grow, profitability rose from a 10 percent loss on average to a 5 percent gain on average by 2010. This is likely due to firms freezing salaries and hiring and perhaps cutting down the sales and marketing budgets.

Downturn case study: Salesforce

Salesforce entered the downturn as a category leader in B2B SaaS with nearly $500M in revenue in 2007 and $3.5 million in operating losses. Throughout 2008, the company grew revenues by 51 percent to $748 million and operating profit surged to $20.3 million. And in 2009, the company repeated this stellar performance by growing revenues 44 percent to $1,077M and operating profit to $63 million. These results occurred against the backdrop of a global financial downturn and with a product focused on helping people sell more effectively (not something one would expect would sell well during a free-fall recession).

The revenue growth throughout those years followed the growth in sales and marketing spend. In 2008, the company grew sales and marketing by 49 percent, driving 51 percent revenue growth at about $1.50 of sales expense per $1 of recognized revenue added. In 2009, the company grew sales and marketing 42 percent resulting in 44 percent revenue growth at $1.63 of sales expense per $1 of recognized revenue. By 2010, the sales growth advantage was gone and Salesforce not only dropped its expense growth rate but also reverted to spending $2.64 per $1 of new revenue added.


Looking at these results Salesforce executed on the growth opportunities in 2008 and 2009 by ramping up sales expenses. The relative cost to acquire customers in 2008 and 2009 compared to 2010 proved significantly cheaper (approximately 40 percent less expensive). When faced with an advantage like that, every founder should charge ahead.

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Dougal Cameron is director of Houston-based Golden Section Venture Capital.

GOOSE has invested in a logistics automation startup that has just emerged from stealth-mode operations. Photo courtesy of Outrider

Houston investor group backs growing logistics automation startup emerging from stealth

Money moves

A Golden, Colorado-based logistics technology startup has emerged from stealth-mode operation aft two years of development to collect its recent $53 million investment that a Houston investor group contributed to.

Houston-based GOOSE has announced its participation in Outrider's recent raise, which included both a seed and series A round. The startup has created an autonomous yard operations tool for logistics purposes. The company also received investment from the likes of NEA, 8VC, Koch Disruptive Technologies, Fraser McCombs Capital, Prologis, Inc., Schematic Ventures, Loup Ventures, and more, according to a news release.

The goal of distribution yards is to keep semi-trailers full of freight moving quickly in the space between the warehouse doors and public roads. However, many of the processes that make up yard operations are manual, inefficient, and hazardous.

The current situation in logistics hubs is not optimized, and yard operations are ineffective and even hazardous.

"Logistics yards offer a confined, private-property environment and a set of discrete, repetitive tasks that make the ideal use case for autonomous technology," says Andrew Smith, founder and CEO of Outrider, in the release. "But today's yards are also complex, often chaotic settings, with lots of work that's performed manually. This is why an overarching systems approach – with an autonomous truck at its center – is key to automating every major operation in the yard."

Outrider's technology can automate repetitive and manual tasks, like moving trailers around, hitching and unhitching them, connecting and disconnecting trailer brake lines, and monitoring trailer locations, per the release.

"Outrider represents the type of company we at GOOSE want to fund," says Samantha Lewis, director of GOOSE, in a news release. "It is innovative, disruptive, and led by an all-star CEO that has a proven track record in recruiting top talent and top tier investors. GOOSE has been with Andrew from the beginning of his entrepreneurial pursuits and, still, he continues to impress us everyday."

Outrider, which has 75 employees — including 50 engineers focused on the automation technology — has launched pilots with Georgia-Pacific and four Fortune 200 companies. Smith says his relationship with GOOSE has had a positive effect on his career and his startup.

"The experience of GOOSE membership is unmatched. GOOSE, it's founder Jack Gill, and initial members, Art Ciocca and Rod Canion, played major roles in my entrepreneurial career by funding my first successful clean startup and then becoming seed investors in Outrider," says Smith in the release. "I am fortunate to have the team at GOOSE by our side again as we officially emerge from stealth and continue to scale the business."

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Houston is poised to lead 5G growth in Texas, according to a new report

leading the stream

Based on one key measure, Houston sits at the forefront of a telecom revolution that could spark a regional economic impact of more than $30 billion.

Data published recently by the Texas Comptroller's Office points out that as of last November and December, Houston led all cities in Texas for the number of so-called "small cells." Small cells are a key component in the rollout of ultra-high-speed 5G wireless communication throughout the Houston area and the country.

As the Texas Comptroller's Office explains, small cells are low-powered antennas that communicate wirelessly via radio waves. They're usually installed on existing public infrastructure like street signs or utility poles, instead of the big communication towers that transmit 4G signals.

The comptroller's tally shows Houston had approved 5,455 small-cell sites as of the November-December timeframe. That dwarfs the total number of sites (1,948) for the state's second-ranked city, Dallas.

"Houston is in the vanguard of small cell permitting in Texas, and not just because it's the state's largest city; advocates have lauded its proactive approach to 5G. Other cities, particularly smaller ones, are lagging well behind," the Comptroller's Office notes.

According to CTIA, a trade group for the wireless communications industry, 5G holds the promise to deliver an economic impact of $30.3 billion in the Houston area and create 93,700 jobs. The group says industries such as health care, energy, transportation, e-commerce, and logistics stand to benefit from the emergence of 5G.

"Maintaining world-class communications infrastructure is a requirement for success in a rapidly changing global economy. Small cells and fiber technology are the key foundational components for network densification and robust 5G. Cities like Houston that have embraced the need for this infrastructure will see the benefits of 5G faster than others," Mandy Derr, government affairs director at Houston-based communications infrastructure REIT Crown Castle International Corp. and a member of the Texas 5G Alliance, tells InnovationMap.

Derr says leaders in Houston have embraced the importance of small-cell technology through "reasonable and effective" regulations and processes aimed at boosting 5G capabilities. Three major providers of wireless service — AT&T, T-Mobile, and Verizon — offer 5G to customers in the Houston area.

"More small cells and fiber provide greater and faster access for the masses, enabling the connectivity that is essential to our businesses today — whether it's accepting payments on a mobile card reader, completing a sale on the go, or reliably reaching consumers where they are," Derr says.

In a blog post, Netrality Data Centers, which operates a data center in Houston, proclaims that Houston is shaping up to be a hub of 5G innovation.

"Houston has always been on the frontline," Mayor Sylvester Turner said during a 5G roundtable discussion in 2019. "It is who we are. It is in our DNA. We are a leading city. We didn't wait for somebody else to go to the moon. Or to be the energy capital of the world. Or the largest medical center in the world. But you don't stay at the front if you don't continue to lead."

Houston lands on list of nation's top spots for millennials on the move

migration destination

The Bayou City is shining as an attractive destination for young people on the move.

According to the fifth-annual study from SmartAsset, millennials are fleeing cities like Los Angeles and Chicago and migrating to other areas in search of work and a better quality of life, with Houston landing as the No. 18 spot for young professionals age 25 to 39.

In order to compile the list, SmartAsset dug into U.S. Census Bureau data from all 50 states, the District of Columbia, and 180 specific cities. According to the findings, 18,035 millennials moved in to Houston in 2019, while 15,838 moved out. That makes a net migration of 2,197, per the study.

When it comes to migrating millennials, the Lone Star State is tops, landing at No. 1 for states where millennials are moving, with more than 187,000 young people heading to Texas in the pre-pandemic year. Though some 154,000 millennials left Texas during the same time period, this results in a net gain of more than 33,000 millennial residents, the biggest net gain for the group in the country, giving Texas the lead in millennial migration for the second year in a row.

In news that is hardly shocking, Austin landing as the No. 4 hot spot overall.

While Austin ranks as the top Texas city where millennials are moving, one other Texas spot landed in the top 10, the Dallas suburb of Frisco (No. 6), with a net migration of 3,516 out-of-state millennials in 2019.

Dallas just missed the top 10, landing at No. 11 on the list, with a net millennial migration of 2,525 in 2019. San Antonio (No. 22) showed a net migration of 1,865 millennials.

The top city overall for millennial migration in 2019 was Denver, followed by Seattle.

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This article originally ran on CultureMap.